CNBC Sport: Pro sports team valuations are in a ‘bubble,’ says Redbird’s Gerry Cardinale
A version of this article first appeared in the CNBC Sport newsletter with Alex Sherman, which brings you the biggest news and exclusive interviews from the worlds of sports business and media. Sign up to receive future editions, straight to your inbox. It took nine months, but I finally found a high-profile investor who says professional sports team valuations are too high. This week’s “On The Record” guest is Gerry Cardinale , the founder of RedBird Capital Partners. RedBird is a private equity firm that focuses on media and sports investments. RedBird has been the controlling owner of AC Milan, the Italian professional football (soccer) club, since 2022. It’s also an investor in Skydance Media and one of the driving forces behind Skydance’s still-pending merger with Paramount Global. Cardinale says he’s “pencils down” on all major U.S. sports team acquisitions right now as valuations soar. “If you’re a student of history, you know that always going up is not is not a great arbiter for making an investment,” said Cardinale. “There needs to be some normalization in what I see as a bit of an asset bubble.” Since we started this newsletter in September, I’ve spoken with many people who have touted the benefits of sports team ownership. They’ve pointed out investing in a franchise tends to be recession proof. The assets are scarce and appeal to rich people’s vanity – a constant in all macroeconomic environments. The values are largely tied to media rights deals, which keep going up and up , at least for the big U.S. sports. The influx of private equity owners has added potential bidders, which boosts prices. The private equity firm Arctos Partners created an index with the Ross School of Business at the University of Michigan that tracks team transactions over the past 60 years. The results are clear: team valuations have risen for six decades in a row, including a stunning jump in recent years. The phrase “up and to the right” has never been more accurate. Arctos is one of the firms that’s now allowed to buy a piece of a National Football League team – a rule that changed last year. Arctos quickly acquired a 10% stake in the Buffalo Bills. Ares Management, another authorized PE firm, has bought a 10% stake in the Miami Dolphins. RedBird isn’t on the NFL’s list of accepted private equity limited owners, but Cardinale told me he’s uninterested in buying a minority stake in any major U.S. team right now. “I don’t think that’s a great investment,” Cardinale said. “I want to have an involvement, a partnership, in the actual governance, in the underwriting of the business plan.” A 10% ownership stake gives firms little control over day-to-day team operations. Minority investments come with no voting rights. Cardinale told me one of the major red flags for team ownership is a lack of generally accepted equity research for the asset class. Almost all sports teams aren’t publicly traded. That has limited the insight into cash flow projections for how they’ll perform. He noted Forbes Magazine and CNBC Sport’s team valuations (led by our Michael Ozanian ) are the primary way investors research valuations given the lack of options. Cardinale says he’s more interested in being the majority owner of a U.S. sports team one day – just not at today’s prices. “I don’t like the entry prices right now, because the underlying business plans are not there to really pay for it, and it relies on a certain assumption on media rights trajectory,” he said. Cardinale noted that while NBA and NFL media rights have soared for decades, the question will become “the slope of the curve” for future deals. The NFL can opt out of its current media rights deal after the 2029-30 season. The NBA has its TV deal locked up until the end of the 2036-37 season. He predicted we’ll see rights payments fall for sports with lower ratings – though perhaps not Major League Baseball. Cardinale is invested in New England Sports Network (NESN), which carries local Boston Red Sox games, through RedBird’s minority stake in Fenway Sports Group. RedBird is also a minority owner in the YES Network, which owns the New York Yankees’ local rights. That puts Cardinale in an unusually strong position to help dictate the future of local MLB rights. MLB Commissioner Rob Manfred has been vocal about his desire to take back local rights from regional sports networks in 2028 to sell a new nationalized product. Manfred will need buy-in from the big-market clubs like the Red Sox and the Yankees, whose RSNs bring in tens of millions more in annual revenue than those of smaller markets. Cardinale said one idea being discussed is to form a new company that could own local rights and negotiate with distributors. “The challenge baseball always has is there’s a subtle tension between the big markets and the small markets. They both need each other,” Cardinale said. “I think that baseball will do very well having groups like the YES Network and NESN – the Yankees, the Red Sox – and there are others like the Cubs and LA [Dodgers] anchor what ultimately will be a centralized media company.” At this point, Cardinale’s idea is hypothetical. MLB has talked to many people about different plans for regional games, according to people familiar with the league’s conversations. A company that controls media but grants different amounts of equity in the venture to clubs isn’t part of the league’s current thinking, the people said. Still, Cardinale points out that teams should think of themselves as their own live entertainment entities and that there would be clear value in a company that could see distribution rights to all games at a national level. An MLB spokesperson declined to comment. On the record With RedBird Capital Partners founder Gerry Cardinale … I spoke with Cardinale about several of RedBird’s investments, including the UFL – that’s the name of the combined USFL-XFL spring football league, which came together last year. I gave Cardinale an impassioned plea for the UFL to rebrand itself as an NFL developmental league that could service players such as Trey Lance , a quarterback who desperately needs live reps but can’t get them because there’s no forum for him to play what essentially should be minor-league football. The NBA has the G League, and the MLB and NHL have minor league affiliated clubs that offer the ability to develop talent for major league teams. The NFL doesn’t have this same system, and the UFL could be that … Watch the entire interview here . Or listen to it here and follow the CNBC Sport podcast if you prefer the audio version. And if you go the audio route, a bonus: I also discuss the week’s biggest sports and media news including my thoughts on Cardinale’s interview with my colleague Lillian Rizzo . CNBC Sport highlight reel The best of CNBC Sport from the past week: One of those stories I talked about with Lillian was her report that high school sports at PBS stations are at risk with potential federal funding cuts. You can read that story right here. It’s been a rough go recently for apparel companies, but the Swiss brand On is slowly gaining market share at the expense of Nike and Adidas, reports CNBC’s Merritt Enright . CNBC contributor Karen Finerman joined “Fast Money” to talk about her investment, alongside Alibaba founder Jack Ma and supermodel Karlie Kloss , in the WNBA’s New York Liberty, valuing the team at about $450 million. A CNBC Sport exclusive: Private equity firm Valeas Capital has acquired a majority stake in TicketManager, a company that specializes in corporate ticket management, for $110 million. Have you heard of Hyrox? 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Disney claims YouTube knew Connolly was under contract but offered a job to him anyway and “induced Connolly to breach the Employment Agreement,” at a time when Connolly was working on a new licensing agreement between Disney and YouTube. “Connolly has intimate knowledge of Disney’s other distribution deals, the financial details concerning Disney’s content being licensed to YouTube, and Disney’s negotiation strategies, both in general and in particular with respect to YouTube,” the lawsuit claims. I’m going to crowdsource this one – what’s the best sports/athlete analogy for this? I’m thinking of an athlete on one team who is traded mid-season to an arch rival to work for the other team. The one that came to mind will be a winner with my younger audience – the Chicago Cubs trading Lou Brock to the St. Louis Cardinals in June 1964. Around the league WNBA players want to get paid more, and that quest will be driven by additional revenue coming into the league. A key component of that will be advertising. The WNBA has struck a deal with Nielsen to measure its television viewership across traditional TV and streaming – the largest commercial measurement deal Nielsen has ever struck with a women’s sports league, Axios’s Sara Fischer reports . The College Football Playoff needs to figure out its next iteration, which could include moving to a 16-team field. ESPN has more details on the latest thinking about different big-time college football programs. One of 54 T206 Honus Wagner cards is currently up for auction, but you’re going to need to pay at least $3.2 million, Sportico reports . The 1909 American Tobacco Company T206 is the gold standard for baseball card collectors. The last T206 Wagner up for auction sold in 2022 for $7.25 million by Goldin Auctions.
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